Investors File Yet Another Securities Suit in the Wake of an FCPA Investigation

There is no private right of action under the Foreign Corrupt Practices Act (FCPA), but as I have frequently noted in prior posts, news of an anti-bribery investigation frequently is followed by a shareholder lawsuit based on allegations relating to the investigation. The latest example of this type of follow-on civil action involves the investment management firm, Och-Ziff Capital Management Group, which, according to media accounts, is the target of alleged corruption investigations.

In February 2014, the company’s name was linked to ongoing investigations involving the Libyan government in the years leading up to the 2011 overthrow of the Qaddafi regime. According to a February 3, 2014 Wall Street Journal article (here), Och-Ziff was one of several financial companies under investigation by the DoJ and the SEC for allegedly improper payments to government officials affiliated with investment funds of the Libyan government, including the Libyan Investment Authority.

As discussed here, on March 18, 2014, the company itself disclosed that it was the subject of an ongoing civil and criminal investigation into whether the company violated the FCPA in its dealings with Libya. The company also disclosed that it began receiving subpoenas from the Securities and Exchange Commission and requests for information from the Justice Department in 2011.

Then in late April 2014, news stories involving the possibility of a separate set of circumstances involving the company started circulating. As discussed here, the news reports suggested that the government authorities were investigating loans totaling $234 million the company allegedly had made to companies associated with a wealthy Israeli, in connection with two projects in the Democratic Republic of Congo. The company’s share price declined nearly 10 percent on this news. (Interestingly, and perhaps significantly, the Wall Street Journal article that first reported this news last week is no longer available on line, nor is the collection of documents the Journal had posted relating to the allegations.)

According to plaintiffs’ lawyers’ press release (here), on May 5, 2014, shareholders initiated a securities class action lawsuit in the Southern District of New York against Och-Ziff and certain of its directors and officers relating to these investigations. According to the press release, the complaint alleges that

defendants made false and/or misleading statements and/or failed to disclose that: (i) the Company violated relevant anti-bribery laws by accepting an investment from the Libyan Investment Authority, a sovereign wealth fund; (ii) the Company loaned $234 million to help finance two ventures in the Democratic Republic of Congo in violation of the Foreign Corrupt Practices Act (“FCPA”); (iii) beginning in 2011, the Company received subpoenas from the Securities and Exchange Commission (“SEC”) and the United States Department of Justice (“DOJ”) in connection with the transactions mentioned above; and (iv) as a result of the above, the Company’s financial statements were materially false and misleading at all relevant times.

While a civil action following an FCPA investigation is nothing new, this case may be somewhat unusual in that the investigation related to the Libyan investigation has not yet even resulted in an enforcement action against the company and the information relating to the Congo projects has so far been the subject only of various media reports.

In any event, the new securities class action lawsuit involving Och-Ziff is the latest example of a phenomenon on which I have commented frequently in recent months , which is the filing of a shareholder lawsuit in the wake of the announcement of the a regulatory or governmental investigation.

There have in fact been a number of securities class action lawsuits filed already this year after the announcement of an investigation of possible violations of anti-bribery laws. As I discussed in a recent post, here, in March 2014, shareholders of Hyperdynamics Corporation filed a securities class action lawsuit against the company and certain of its directors and officers in connection with an FCPA investigation in which the company has become involved. In addition, as discussed here, in January 2014, NuSkin was hit with securities suit as a follow-on to the company’s announcement of an anticorruption investigation in China. In addition, as discussed in the same blog post about NuSkin, Archer Daniels Midland was hit in January 2014 with a shareholders’ derivative suit after the company announced that it had settled a pending FCPA investigation.

The phenomenon of the civil action following after the announcement of an anti-bribery investigation is already a significant factor in the filing of securities class action lawsuits so far this year.

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